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Cancelling term life policy?
Old 01-16-2013, 09:56 PM   #1
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Cancelling term life policy?

I have a term life policy which I am intending to cancel.

The reasoning for cancelling is that if I have enough money to support myself and my family once I FIRE, then there must be enough money to support my family without me. There is no estate duty in Hong Kong (nor is there expected to be) so I do not need it for that purpose. On that basis, I view the premium as a wasted expense and money that is better spent on other things or experiences.

The only reason I am hesitating is that the premium is fixed at a very low rate until I turn 53 in 2019. If I cancel and had to reinstate coverage for any reason, the premium would be much higher (how much higher depending on age etc at that time) and would also be subject to any medical conditions I had at the time.

I do not have the option of partially reducing the coverage - it's all or nothing.

DW was the largest beneficiary and she is fully on board with cancelling. The other (lesser) beneficiaries were my siblings who never knew they were on the policy and (i) do not really need the money but (ii) will get a small bequest under my will instead (conditional upon my estate being over a specified threshold).

Is there anything else I should consider before I cancel?
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If you had to re-apply....
Old 01-16-2013, 10:39 PM   #2
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If you had to re-apply....

I completely understand where you are in this thought process and sounds like it's a good one to have.

My only thought reading your post was the part where you said "if I had to re-apply the rates would be much higher..."

You simply need to study that one. Ask youself what would cause you to have to re-apply... etc.

I am asking the same question regarding my 10 year term policy which expires in 7 years. I might be self-insured, but since I'm going to be within 6 months of 50 in 6 months.. I have been looking at whether to up it to 20 year term in the next 6 months (before rates go up due to my age)...

It's hard to let go of term I find. But if you're truly self-insured - keep your cash is my opinion and I probably will be keeping my 10 year.
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Old 01-17-2013, 03:35 AM   #3
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I have a few years left on a 20 year level term policy. My plan is to keep paying until the 20 years are up, then let the insurance go. My reasoning is that it's pretty cheap and would supplement the available funds for my wife if I pass in the next few years.

My bigger debate is letting the disability policy go. It's much more expensive, so it's a more tempting target......
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Old 01-17-2013, 04:33 AM   #4
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Quote:
Originally Posted by traineeinvestor View Post
The reasoning for cancelling is that if I have enough money to support myself and my family once I FIRE, then there must be enough money to support my family without me. There is no estate duty in Hong Kong (nor is there expected to be) so I do not need it for that purpose. On that basis, I view the premium as a wasted expense and money that is better spent on other things or experiences.
One of my life principles is: it is always a good idea to be worth more alive than dead. No need to tempt destiny, or anyone else.

My only question would be if your assets are currently enough to support your family, or is additional growth necessary? If they still need to be invested and managed, are you confident your wife and other heirs can do that. If so, then your analysis looks sound.

I had term life for many years, with the same thoughts you have now, dropped it when we became financially secure.
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Old 01-17-2013, 05:35 AM   #5
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I kept our term policies a little past base FI but gradually reduced the amount and once we actually retired I dropped them.
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Old 01-17-2013, 07:51 AM   #6
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There are certainly more recent books than this one but in the early '70's it changed my outlook on life insurance. His premise is that life insurance is to replace income if the income-producing person dies and therefore decreasing term is the best deal.

The Mortality Merchants, : G. Scott. Reynolds: 9780679501541: Amazon.com: Books
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Old 01-17-2013, 07:54 AM   #7
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I have a term policy that I bought for a specific purpose. If something happened to me, my wife would get about half my pension. It was to help her raise my then 1 and 3 year old and help make up the reduced pension income. Still have it, but now the boys are 16 and 14. When the 20 level term is over, it's gone as it did what I wanted it to do, cover the family in case I go early. Will no longer have a need.
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Old 01-17-2013, 08:27 AM   #8
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Quote:
Originally Posted by jarts98 View Post
I have a few years left on a 20 year level term policy. My plan is to keep paying until the 20 years are up, then let the insurance go. My reasoning is that it's pretty cheap and would supplement the available funds for my wife if I pass in the next few years.

My bigger debate is letting the disability policy go. It's much more expensive, so it's a more tempting target......
My opinion is the same as jarts. I think if the policy premium isn't a hardship, that there is a significant benefit of having liquidity available immediately to your widow in the event of your passing. In this way, she will not have to make decisions right away about the investments, but can instead focus on (presumably) her grieving process. In my experience, this is enormously helpful, especially if death is sudden and unexpected.

We intend to keep our modest term policies until they expire, which is around the same time as yours.
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Old 01-17-2013, 09:05 AM   #9
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If the premium is level throughout the term of the policy, you are also getting a more valuable benefit the later in the term you go.

For example, a healthy 30 year old could get a 30 year $500,000 term policy with level premiums for say $400 per year. This means even at age 59 he is still paying the same $400 per year for the same $500,000 coverage, even though the mortality risk of a 59 year old is significantly higher than that of a 30 year old.

And the longer the initial term was, the more tilted in your favor the financial benefit is late in the life of the policy of keeping the policy in force even if you don't necessarily need the benefit.

In other words, the expected value of the policy (in probabilistic terms) may be slightly or very positive in your favor.

On the other hand, if your surviving spouse absolutely won't benefit significantly should the money fall in her lap, it is surely wasted money than can be better spent on the living now.
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Old 01-17-2013, 09:19 AM   #10
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I'd echo the previous comments. Factors:
-- You've already paid the most "expensive" years, the remaining insurance may even be a net positive expected value.
-- If your investments are on "autopilot" or your wife is ready/willing to manage them and they will generate sufficient returns for her in any investment climate if you aren't there, then the insurance probably isn't needed. On the other hand, if you just barely met your "number" (not much extra cushion) and your close management of the assets is required to help them gain in value for a few more years, then the insurance is probably worth keeping.
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Term Life
Old 01-17-2013, 10:14 AM   #11
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Term Life

Hi:

I have been going through the same exercise with a term life policy and have come to the conclusion being offered by SamClem and others. One consideration worth sharing is to consider in your decision if you have accounted for all educational costs for your children or grandchildren that you feel you may have an obligation to support. I am 53 and dropping a 250K policy with an accelerating quarterly premium. I will continue to keep two other policies until the term on them comes up and then will drop them at that time.
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Old 01-17-2013, 10:47 AM   #12
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My original plan was to stop my term policy when I retire. We recently refinanced to a low rate on our mortgage and I'm considering not paying it off early. With that, I may keep the policy a few extra years, just in case. We'll strongly consider canceling my wife's policy after I retire though.
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Old 01-17-2013, 10:52 AM   #13
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I would not recommend cancelling it unless it is really expensive. Do you have any retirement benefits that would be changed it you were to go away? For example, in the US if both spouses get SS it is reduced to just one if one dies. I would run planners with all of the different scenarios.

In our case, we would not be able to safely retire if my DH did not have some insurance as I would not get his pension if he dies. Also, we both receive similar SS benefits so once he passes the income is halved although expenses are not. As DH is older and has an illness, we could not spend the years together we hope to have without this safety net.
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Old 01-17-2013, 12:24 PM   #14
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I dropped mine, using the same reasoning you're using. I had enough savings to nearly support two people. I could do the math and see that there was plenty to support one.

But, Fuego is also correct. If the initial level premium period was pretty long, and you're getting toward the end of that period, it's possible that the (face amount) x (probability of death) > premium. That may be appealing just as an unusual opportunity to have the odds in your favor.
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Old 01-17-2013, 02:43 PM   #15
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I dropped our last term policy in December, now that we are solidly FIREd and have written our last tuition check. Similar logic to those above who made the same decision.
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Old 01-17-2013, 04:13 PM   #16
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i was going to cancel mine years ago but now i am glad i didn't.

why?

a divorce and remarriage happened.

my wife and i not wanting to pull the rug out from each other if one dies we decided to leave everything to each other.

now instead of each of our kids having wait for their inheiritance and waiting for the other spouse to die i left that life insurance policy to my kids and my wife left whats left of a small buisiness to her son.
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Old 01-17-2013, 04:55 PM   #17
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That may be appealing just as an unusual opportunity to have the odds in your favor.
Well, in a dark "here's a silver lining" sort of way.
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Old 01-17-2013, 05:09 PM   #18
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Thank you all for the helpful comments and perspectives.

To address some of the issues raised:

1. although my financial affairs are a bit more complicated than most, I have named DW and my brother as executors/trustees. Each of them is well able to manage the estate

2. DW has sufficient assets in her own name already. Even if she quits her part time job, there will be no urgency in getting access to assets

3. while there is no money specifically set aside for my daughters' eductaion, our FIRE calculations already assume that we will be paying those costs as part of our annual expenses. The possibility of grandchildren is so far into the future that the policy would be long cancelled before we have any

4. we have no retirement benefits at all - there is no SS or pension awaiting either myself or my wife in the future. Everything is funded out of the money we saved during our careers

5. there is quite a bit of cushion in our number (I've even assumed a slightly higher tax rate even though the HK government's finances are among the soundest in the world). I could easily have gone last year or even the year before but fell victim to "one more year" syndrome. There is a wildcard in that our local currency (HKD) is pegged to the USD. If the peg goes that could play havoc with our finances but it would take something pretty signifcant to derail the model

6. although the policy is a good deal, I keep comming back to the point that it is still an expense for something we don't need.

I think I'm good to cancel the policy and save myself some money.
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Old 01-17-2013, 05:11 PM   #19
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One of my life principles is: it is always a good idea to be worth more alive than dead. No need to tempt destiny, or anyone else.
Umm....if we have FIREd our savings will either shrink less or grow more if we are not around to spend it so by definition we are always going to be worth more dead than alive to someone....

I'm not sure if DW needs to know that.
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Old 01-19-2013, 08:20 PM   #20
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I had a policy with a little whole life, with a lot of term. I had the agent change it to a spia. While small, its earning 4% until cashed in. Enuff rt now to have good funeral as long as inflation doesnt kick in. If does well guess i will have a drive thru viewing! Just might be some interesting conversion options for you. I would never have invested in a spia, but now an owner of one! Never say never!
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